What`s (not) wrong with modern capital budgeting - Peter Nippel
Arbeitspapier, Universität zu Kiel, Januar 2002
Capital market imperfections cause a relevance of a project`s contribution to the firm`s total risk, e.g. because of costs of financial distress. Based on the observation Stulz (1999) argues that modern capital budgeting leads to an inappropriate assentment of the value of a project since only systematic risk is considered. I show that a project`s contribution to total risk and the resulting indirect effect on the firm`s value can and has to be considered without basically changing the established principle of modern capital budgeting.